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Title: Altruism, Reciprocity, and Equity: A Unified Motive for Intergenerational Transfers

Citation Type: Miscellaneous

Publication Year: 2012

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Abstract: Why do parents divide bequests equally while transferring inter vivos gifts unequally? Across times and places, why have there mainly been only two extreme choices of distribution of bequests: either to give them to just one child (unigeniture) or to divide them equally (equigeniture)? How can a motive for intergenerational transfers explain both "equal division puzzle" (the former) and polarized inheritance patterns (the latter)? This paper presents a behavioral model that coherently rationalizes these empirical realities. Namely, as head of a family, a parent altruistically cares about children but also wants them to spend effort for family. However, effort is costly and individual level of each child is unverifiable to a third party adjudicator. Given this incomplete information, there rise only two stable equilibria: either equigeniture or unigeniture. When the productivity of effort rises, the evolution of inheritance pattern from unigeniture to equigeniture occurs. So equigeniture is eventually adopted due to a rise in the productivity throughout industrialization. Furthermore, if the parent wants to counterbalance inequality among children who exert equal effort, the greater amount of inter vivos gift is transferred to a child with lower relative income compared to his siblings, while bequests remain equally divided. This model is consistent with the aforementioned empirical realities but also lends itself to further empirical tests. First of all, with a data set of pre-industrial agrarian societies, we find that a rise in the productivity of effort causes equigeniture to be chosen over unigeniture, which is consistent with the model. Second of all, through an empirical analysis on a micro-level data on inter vivos transfers in contemporary families, we find supporting evidence as follows: (i) income inequality among children increases the probability that their parent gives any inter vivos gift; and (ii) the amount of the gift is negatively associated with relative income of each child compared to his siblings.

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Authors: Lee, Insook

Publisher: UC Berkley

Data Collections: IPUMS CPS

Topics: Family and Marriage

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